Apple, Publishing Houses Face Antitrust Probe

The European Union may be in the middle of its biggest crisis ever, but that doesn't mean it's overlooking the small stuff - international competition over the sale of eBooks, for example. The E.U.'s executive body, the European Commission, is investigating Apple and five major publishers for possible antitrust violations relating to the pricing of eBooks. The U.S. Justice Department is also investigating the publishers and Apple, for possible anti-competitive practices.

The investigations stem from an agreement the five publishers reached with Apple when it introduced the iPad.

Joining us now is Sarah Weinman, news editor for Publishers Marketplace. Good to have you with us, Sarah.

SARAH WEINMAN: Thanks so much for having me on, Lynn.

NEARY: Well, of course, Sarah, as all things in publishing these days, in order to talk about this story, we have to talk about Amazon. And this story certainly goes back to the way Amazon priced eBooks when it first introduced the Kindle, its own eReader. Can you explain that?

WEINMAN: Sure. The way that Amazon priced eBooks for all publishers up until about early 2010 was through something called the wholesale model. In that model, a publisher could set a price, but a retailer was free to then alter the price as it saw fit. And, in Amazon's case, what it would do is it would take a loss on selling these eBooks in order to boost its market share and to boost the number of Kindles that it sold.

NEARY: So when the iPad came out, then the publishers saw a chance to fight back against Amazon's pricing strategy and they struck a deal with Apple to sell their books not wholesale, but on something called the agency model. What is that?

WEINMAN: The agency model operates a little differently in that a publisher sets the price and that is the price. In exchange, the retailer then gets a 30 percent cut of that overall eBook price, which leaves the publisher about 70 percent of the total revenue.

NEARY: So how is that a game changer?

WEINMAN: Well, what it meant is that, for many best selling titles, the prices seemed to go up overnight if a consumer wasn't paying attention. And that caused a number of people to get upset and voice their displeasure. And certainly for a while, on many best-selling titles, if you went to Amazon and to the customer review pages, you saw a whole bunch of one-star reviews all complaining about price.

NEARY: Well, the publishers, of course, complained about the Amazon price point for eBooks, which was $9.99, saying that was too low. They couldn't survive with that price. And so they used this to sort of fight back against Amazon, which is a huge company, a major player. So why is that pricing strategy then viewed as anti-competitive?

WEINMAN: I think from investigative body's standpoint, just the very idea that there could be this uniform price might send up some red flags. Whether or not that's actually the case remains to be seen. There are a number of ongoing investigations, not just at the federal level and with the European Union, there are also some state investigations, as well.

Apple was already on the DOJ's radar because of its music business and whether there were similarly antitrust measures going on, as well.

NEARY: Publishing companies worry that if the price point for eBooks gets too low that they won't be able to survive. Is that a real possibility?

WEINMAN: That's certainly a real possibility, especially as digital becomes a larger market share and the physical space decreases. I mean, we've already seen the loss of Borders through bankruptcy. Barnes and Noble is transforming into a primarily digital company, eventually.

So, certainly, if the profit margin on eBooks decreases for publishers, they're going to have to find a way to contend with this.